Tips for Getting Rid of Debt

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If you're carrying some or a lot of debt, you aren't alone. Many have a substantial amount of it, and while some of it may be from careless use of credit cards, in many cases it's due to medical bills, unemployment, divorce, and other costly life events. The good news is that you can pay off your debts and get your finances under control. Check out these Tips for Getting Rid of Debt.

Tips for Getting Rid of Debt

Assess Your Situation

Being in debt that you're struggling to repay can be so stressful that you may be tempted to avoid thinking about it as much as possible, but in order to really get your money in order and tackle this problem, you need to fully understand what you're up against. That means making a list of all your debts as well as how much you're bringing in each month. Next, you need to spend a few weeks, or ideally a few months, tracking your spending so that you have an idea of where that money is going and where you might be able to cut back.

Reduce Your Spending

While a few may be living on a budget that's already cut to the bone, most could cut some spending here and there. Even if you think you can't, try to seek some creative solutions. What if you cut your rent by taking in a roommate or renting out a room to tourists on a room sharing site? Would moving closer to work save you a significant amount of money? It may even be possible to reduce your monthly payments themselves or the interest rate. With a student loan refinance, you might lower your monthly expenses or otherwise get a more favorable repayment plan. You could also look at whether you have any offers to roll a credit card balance onto another card for a big interest rate reduction. Sometimes these go as low as 0%, but be aware that this is usually only for a limited time.

Have a Plan

Even if you think that the money you owe isn't a problem, that may be because you're only making minimum payments. The problem with this approach is that you may not be reducing how much you owe very much thanks to interest. This is one reason that planning to pay off your debts in order from the highest to the lowest interest rate is the most financially savvy idea. However, there's something to be said for human psychology as well, and if quickly paying off a low-interest debt of just a few hundred dollars in a short time will fire you up with motivation to tackle the rest of what you owe, that's probably the right approach. This is one of most important Tips for Getting Rid of Debt.

Essentially, you should focus most of your energy on one debt at a time, only making minimum payments on the others. Each time one is fully paid off, you take the full amount that you were paying on that plus the minimum that you were paying on the next in line and apply that. By continually adding in these minimum payments as the number of bills you have shrinks, you're working your way down the line and sending in bigger and bigger sums of money until you finally don't owe anyone.

When to Consider Bankruptcy

While it's true that bankruptcy is far from an ideal solution, there are times when it's better than a bunch of other bad solutions. If you have a substantial 401(k) that you've been considering clearing out to pay off debts, bankruptcy may be the better option. Creditors can't access what you have saved there, and it's also protected in case of bankruptcy. Most retirement funds are protected from bankruptcy although IRAs and other accounts not under ERISA protection may only be protected from creditors up to a certain amount depending on the state you're in. 

You can check with an attorney for more specifics based on your location and situation. An attorney might also be able to help you determine if bankruptcy is the best option if you have few assets or assets you're trying to protect or if paying off your debts is leaving you very little to live on. Keep in mind that while your credit will take a hit, it's already taken one if you're deeply in debt, and bankruptcy can give you the opportunity to start fresh.

We hope these Tips for Getting Rid of Debt can help put you on the path to financial freedom.

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